Advantages of a Balanced Scorecard

by Alfred Sarkissian, Demand Media

The balanced scorecard is a set of financial and non-financial measures that link the strategy to operational tasks.

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The balanced scorecard is a set of financial and non-financial measures regarding a company’s success factors. It reflects the essence of the organization’s value-creating activities. While originally adopted by large organizations, it applies to organizations of any size or sector. An increasing number of small businesses are embracing the balanced scorecard method and achieving results.

Overcoming Challenges

The balanced scorecard helps organizations overcome three fundamental challenges: performance measurement, rise of intangible assets and implementing strategy. The traditional financial measures of performance do not reflect today’s business environment and do not encourage long-term thinking. Intangible assets create about 75 percent of the value generated in organizations. The balanced scorecard provides metrics for the effective use of these assets. Successful strategy implementation is a major challenge for all organizations. Vision, people, resource and management barriers can thwart the strategy.

Components

The balanced scorecard measures performance from four interrelated perspectives: financial, customer, internal business processes, and learning and growth. With the improvement in employee learning, internal business processes improve. This creates better products and services; therefore, higher customer satisfaction and higher market share is achieved, which is reflected in financial measures.

New Management Processes

The balanced scorecard helps initiate four management processes that link short-term initiatives with long-term objectives. The first process translates the vision and the strategy into operational steps. The second step communicates the operational terms to various departments. The third process is business planning. This helps managers choose the most effective alternatives toward organizational objectives. Finally, feedback and learning help the organization adapt to changing circumstances. This will ensure the long-term survival of the organization.

The Personal Scorecard

Small businesses rely on employees to perform operational tasks. Motivated and effective employees are the cornerstone of customer satisfaction. Personal scorecards translate the company’s scorecard into tangible objectives for individual employees. They are tailored to each individual’s roles and strengths. Personal scorecards should create synergies among employees and encourage cooperation and specialization.

Benefits

Small businesses are often struggling to survive; hence, they mostly emphasize financial goals. This makes planning for the future difficult. However, in comparison with larger firms, small businesses need lower volumes of information to operate and evaluate performance, but the communication of relevant information is vital to the effective operation of a small company. On the other hand, the smaller number of employees reduces challenges to building consensus and facilitates team participation in strategizing.

About the Author

Alfred Sarkissian holds a master’s degree in industrial management. With experience in business and public policy, he has covered intellectual property rights, industrial policy and technology policy for various publications.

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